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Sunday, April 30, 2017

Net Worth – April 2009

Posted by Tim Stobbs on April 30, 2009

Ok, I have to confess.  With all the bad news for such a long time I’ve completely ignored my net worth for the full two months between posts so even for me this is all new.  So here’s the breakdown.

Assets

House $312,800
RRSP $18,900
LIRA $8,800
TFSA $5,400
Pension $6,000
Wife’s RRSP $9,400
Wife’s Investment Account $5,000
My Investment Account $4,700
High Interest Savings Account $2,800

Debt
Mortgage $135,300
HELOC $0

Therefore my net worth now stands at $238,700 for the end of April 2009. That is an increase of $22,700 or 10.5% from my last update.  Of that my investment net worth was $61,000 which was an increase of $7500 or 14%.

Up?!? What is the whole net worth going up thing?  I was starting to forget what this feels like after the last while.  I’m used to sideways or down.  So what happened?  Well a few things.  First the local real estate market is coming back to life and shifting values back up as houses start to move again.  Then the stock markets slowly drifting up and some savings have help bring the investment net worth back up.

Also I previously mentioned that the HELOC is now paid off again.  My wife’s TFSA funding is in transfer so until that is offically opened I chose to show it under the High Interest Account.  Also this statement doesn’t include my tax refund since I have yet to recieve that money yet.

The other future bit of news is my wife’s daycare is opening back up next month so with that extra cash flow the net worth should hopeful keep us making some progress regardless over the rest of the year.  Overall this was nice surprise of an update.

Guest Post: Disability Insurance

Posted by Tim Stobbs on April 29, 2009

This is a guest post from Brian over at Disability Insurance Quotes.

From The Wealthy Barber: “Disability insurance is the most neglected of all forms of insurance, yet for many people, it’s the most critical insurance need…. A thirty year old has a one in four chance of becoming disabled for one year or more at some point in his or her life…When people are disabled, they don’t just cease to be an asset to their families…they become a liability.”

When I review benefit hand books, many of my clients are surprised to learn the details of the actual coverage that they carry. Most disability benefits only cover 60% of the employee’s salary and exclude bonuses. Many plans will only cover the first five years of disability and most plans are not indexed to inflation. Many clients are unaware that their disability benefits are not portable and a move to a new company results in a different benefit plan.

As the working population ages and companies are more cognizant of expenses, there is a growing trend for employers to offer “flex dollars” benefits. With this plan the employee is given an allotted sum of dollars from which he must choose from a shopping list of benefits (health, dental, life, short term disability, long term disability, critical illness insurance). While the employee can top up each element of coverage, in general, as the employee gets older, the same dollar allotment buys fewer benefits

The Disability Contract

When you pay for the premium out of pocket there is no tax-deduction, but you receive the benefits tax free. This compares to a company paid policy where you are taxed on the benefits.

A personally owned non-cancellable disability insurance policy is a contract between the individual and the insurance company. As long as the premiums are paid, the policy cannot be cancelled or altered in any way without the individual’s consent.

There are three common clauses used to determine the criteria and length of time for which an insurance company is obliged to pay a claim if you become disabled. This determines whether you can be forced to work, even in some other field at a reduced level of income. These clauses are known as:

    Any occupation” requires that you must be unable to work in any occupation, regardless of the change in duties or income.
    Regular Occupation” clause states you must be unable to perform the important duties of your own occupation and not working in any other gainful occupation.
    Own Occupation” is the most complete yet most expensive clause as it permits you to receive full benefits if you are totally disabled not working in your field but choose to work in another field.

Ask yourself “How likely is it that I could be totally disabled out of my specialty and still be able to work in another?”

Additional contract terms to know:

Elimination Period (waiting period)

This is the length of time that must elapse after the onset of the accident or sickness before the insured becomes eligible to receive disability benefits. The typical elimination period for private coverage is 90 days.

Non-Cancellable Contract

Under the provisions of this contract, as long as the premiums are paid, the insurance carrier cannot:

    Cancel the policy
    Change any provisions or add restrictions
    Increase the premiums or add any changes to the existing policies

Features of Disability Insurance

Waiver of Premium

It is important to continue premium payments even after you become disabled especially since you may not receive benefits for 90 days. Many insurers take over paying future premiums while the insured is receiving a disability benefit and some will refund the premiums that were paid during the elimination period.

Future Increase Option

This benefit allows one to increase the benefit by a certain amount at specified intervals without providing evidence of health. You only need to prove earnings. This may be of interest to those who want a robust policy now but to keep premiums low, they take the lowest coverage and enhance the coverage at later time. A chartered accountant, who buys disability insurance and later becomes a roofer, would be an extreme example.

Cost-of-Living Benefit

This benefit ensures that while on claim, the purchasing power of your benefit dollar is increased at specific periods (every 6 or 12 months). There are two formulas which can generally be utilized when applying for coverage:

    CPI index (with or without minimums and maximums)
    Simple interest

Portability

As a general rule, you want the plan to remain as unrestrictive as possible so that future changes in your status or location can be accommodated. An example would be an oil engineer who moves to Saudi Arabia but owns disability insurance purchased 10 years before. Only private plans offer this feature without restriction.

Like all insurance, disability insurance is not well understood by most people. The old adage is true “you get what you pay for”, so do your research.

Level of Benefit

Residual Benefit

A residual benefit is payable if the person is able to work on a limited or reduced basis.  For example, an individual with back pain may only be able to tolerate sitting at a desk for 2 hours per day.  The level of payout is based on the proportion of lost income relative to the time lost.  This provision is essential since most individuals make claims for partial rather than full disability.

Partial Benefit

A partial benefit is also payable if you are working at a reduce level.  However, the payout is based on the amount of lost time and duties and there is no requirement to show a loss of income.  This is an attractive clause for those who are newly employed and show limited prior earnings (e.g. a new graduate doctor).

Paying for the policy

Why should I pay for a policy when I can just contribute to my RRSPs or savings and hope that I will have enough money should I become disabled?  Consider this.  If you are forced to withdraw from your RRSPs you will have to pay taxes.  A withdrawal of $5,000 could be as little as $2,600 in the end depending on your tax bracket.  Additionally, if you are forced to withdraw during a bear market, such as we are currently experiencing, you will be forced to withdraw more units from your mutual funds and potentially at a loss.

If you own an individual disability insurance policy paid from your cash, any claims payment come to you tax free once you have satisfied the waiting period or other contract requirements.  This will apply even if you are currently unemployed.

The insurance company could be on the hook for hundreds of thousands of dollars depending on the age and income to be paid out over a lifetime…hence the time needed to underwrite this policies. Courts usually favour the client in times of claims vs. any dispute with the insurance companies

In summary, disability insurance is only one element in the “Risk Management Strategy”.  Is it worth spending less than 3% of your gross income to protect your greatest asset, the ability to earn a steady income?  Other coverage’s to consider include Life insurance, Critical Illness insurance and Long Term Care insurance.  Visit my website:http://www.disability-insurance-quotes.ca/

Second Goal Down in 2009

Posted by Tim Stobbs on April 28, 2009

Click.”

Did you hear that?  That was me finishing off another of my goals for 2009.  My LOC balance is now at zero!  It’s amazing how satisfying clicking a mouse can be sometimes.  I originally wanted to finish that off closer to the summer, but I decided I wanted to just finish up since my tax return was a bit bigger than I planned on.

In addition the paper work for my wife’s TFSA is finally in the mail.  So once that is all cleared up and her stock is moved over that goal will also be done since I’ve already funded my TFSA.

Now with those two goals down I’m just down to one goal: contribute $25,000 to my pension, RRSP, TFSA’s and taxable accounts.  I haven’t been tracking this goal yet this year, but I should now go back and reconstruct how much I’ve added so far to our accounts.  I know this one is going to take close to the end of the year to finish since it is a challenging one for me to meet.

So if you track your goals, how are you doing?